Personal Loan: Can you qualify for a 5 lakh loan with a ₹20,000 salary – key tips and challenges | Mint

Personal loans are a great way to get financial assistance in times of emergency or if you are about to have an important event and want some extra funds or if you just want to treat yourself with a luxurious gift. These loans do not require collateral, hence, it is a popular choice for people who do not own high net worth assets but are in need of money. However, personal loans have an eligibility criteria which includes income, age, credit score and other factors set by the lender.

Can you get a 5 lakh loan for a 20,000 salary?

A simple answer to this question is, Yes. While it is difficult to secure a personal loan with a salary of Rs. 20,000, many banks/NBFCs provide personal loans to low salaried individuals. Factors beyond your salary are assessed by the lenders to see if you are eligible for a loan. These include your age, assets owned, your relationship with the lender as well as your credit profile.

You must also note that these personal loans will attract higher interest rates than other loans in the market and the repayment tenure as well as the principal amount offered will be much lesser. Hence, getting a 5 lakh loan amount may be possible for you. Let us have a look at some of the top lenders offering Rs. 5 lakh loan on a salary of Rs. 20,000.

1. KreditBee

Interest rates: 16% – 29.95%
Processing fee: ₹1,250

Loan tenure: Up to 3 Years

2. Fibe (EarlySalary)

Interest rates: 16% – 30%
Processing fee: 0.1% – 3%

Loan tenure: Up to 3 Years

3. MoneyView

Interest rates: 14% – 36%
Processing fee: Up to 2%

Loan tenure: Up to 5 Years

4. Axis Bank

Interest rates: 11.25% – 22%
Processing fee: Up to 2%

Loan tenure: Up to 5 Years

5. Tata Capital

Interest rates: 11.99% – 35%
Processing fee: ₹101

Loan tenure: Up to 7 Years

Challenges you may face

High debt-to-income ratio: A Rs.5 lakh loan could be a burden in your monthly budget if you earn a ₹20,000 salary as the repayment will incur heavy EMIs which you may find hard to pay. It is unfavorable to borrow the loan if you already have an ongoing loan debt as it will increase your DTI ratio which may impact your credit score.

Interest rates: Having a low salary will attract a higher interest rate on your personal loan repayment and thus higher EMI which may make it difficult to repay.

Loan rejection risk: If you have a low credit score or an unstable income, your loan application could be rejected. This may as a result lower your credit score.

Key tips to improve your loan approval chances

Co-applicant or guarantor: You can apply for a personal loan with a guarantor or a co-applicant who has a higher income and credit score than yours which will make your profile stronger and more likely to get approved.

Credit score: Keep your ongoing bills and debts clear so that you can maintain a healthy credit score which can help you improve your creditworthiness and improve your chances of getting the loan application approved.

Alternate income: Provide alternate income sources which can prove that you are capable of repaying the debt in time and will not commit any default.

In conclusion, you must first evaluate your finances to figure out whether you can even afford a loan or not. This way you can avoid any financial burden which can make you fall into unnecessary debt traps. You must also ensure that you avoid frequent hard inquiries as that can impact your credit score which may impact your future borrowing chances.

(Note: The list is indicative, and not exhaustive. Check the official websites for the latest updates)